Review of multiple causes of action (Holyoake and another v Candy and others)

This article was first published on Lexis®PSL Dispute Resolution on 22 January 2018. Click for a free trialof Lexis®PSL.

Dispute Resolution analysis: What is the court’s role in dealing with a commercial deal gone sour? Kate McMahon and Sofie Hoffman, partners at Edmonds Marshall McMahon, explain the judgment in the case of Holyoake v Candy and consider its potential implications.

Original news

Holyoake and another v Candy and others [2017] EWHC 3397 (Ch)The Chancery Division rejected charges of extortion, blackmail, intimidation and breach of data protection legislation regarding the Candy brothers’ business dealings. The court held that, although the extension fees on a loan to Mr Holyoake were high, the relationship between the parties was not unfair.

What is the significance of this case?

Nugee J’s judgment dealing with the claims made by Mr Holyoake and his company, Hotblack, against the Candy brothers and others runs to just under 200 pages. The proceedings arose as a result of a loan made in October 2011 for the principal sum of £12m which CPC Group Ltd (CPC, a company the defendants alleged was solely owned by Christian Candy) provided to Mr Holyoake to assist with the financing for the purchase of a mansion block in Westminster, the subsequent amendments to that initial loan and the actions taken by the defendants to obtain repayment. Ultimately, Hotblack sold the mansion block for over £86m, which enabled him to repay CPC’s loan in full. However, overall the project made a substantial loss. Mr Holyoake bought a number of claims against the Candy brothers, CPC and others.

The decision is important for its comprehensive review of these causes of action, many of which may be of relevance to practitioners advising parties to commercial deals that have turned sour. It is also an important reminder that, however dishonest the behaviour of the parties to the proceedings, the court’s role is to consider whether the evidence adduced is sufficient to prove the pleaded causes of action. For Mr Holyoake, the court found that it was not.

How helpful is the judgment in clarifying the law in this area?

The majority of the claims in tort were principally based on allegations of threats, coercion and inducement. These are fully considered in the judgment. A common feature of these types of disputes is the threat of litigation if parties do not meet their obligations.

Mr Holyoake claimed that a supplemental loan agreement (SLA) dated 10 February 2012 (made after he had failed to comply with the initial loan agreement) and subsequent agreements were entered into as a result of litigation being threatened (described by both sides as ‘the nuclear option’). The steps that were threatened by CPC were contained in their solicitors’, Wragge & Co LLP’s (Wragges’), letter before action dated 2 February 2012. One feature of the letter was a statement that if CPC elected to make Mr Holyoake bankrupt, it might begin the process by advertising that a statutory demand had been made as a precursor to the issue of a bankruptcy petition in local and national newspapers. The judge found that this was inappropriate, but that was not to say that CPC knew it was improper.

Duress

In the context of the claim for duress, the judge, having held that none of the agreements were voidable for physical duress, considered economic duress. He identified the essential question as whether CPC was justified in threatening litigation if Mr Holyoake did not sign the SLA and he concluded that it was:

‘The essence of economic duress is the use of illegitimate pressure: I do not see that it can amount to economic duress for a creditor who believes that he has an accrued cause of action against a debtor to threaten to bring proceedings, even if the result is likely to be disastrous for the debtor and even if the creditor spells out in strong language why it will be disastrous.’

Actual undue influence

Nugee J accepted that this doctrine is not confined to what might be called abuse of relationship cases (though he was unclear as to what this plea added to the plea of duress). He found that since he had held that the threat to litigate was not illegitimate pressure for the purposes of the law of duress, it was equally not undue influence for the purposes of the equitable doctrine.

Intimidation

Again, in the context of the claim for intimidation and for the same reason as given when considering the claim for duress, Nugee J found that the threats to pursue Mr Holyoake by litigation were not illegitimate. As regards the threats that he had found to be unjustified—the threat on 8 November 2011 to reveal the loan to Investec and the threat in Wragges’ letter of 2 February 2012 to advertise a statutory demand—he held that neither had any substantive consequences.

Tort of abuse of process

Nugee J also considered in the context of the tort of abuse of process (also referred to as extortion under colour of due process) whether the litigation was being pursued for a collateral objective (described by him as a ‘rare tort’).

He held that the test for whether the proceedings are being abused in such a way as to be tortious remains that as identified in Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance Ltd [2014] UKPC 17, [2014] All ER (D) 137 (Jun) ie whether the proceedings are being used for some wholly extraneous benefit other than the relief sought and unrelated to the litigation, or as a stalking horse to coerce the defendant entirely outside the ambit of the legal claim. He held that no tort was committed.

Unlawful means conspiracy

Several unlawful means were relied on in support of the conspiracy including those referred to above. Blackmail was also relied on. Nugee J, when considering what counts as menaces for the crime of blackmail, commented as follows:

‘‘Menaces’ is no doubt an ordinary English word and in ordinary use it has overtones of something more sinister than simple threat—for a creditor to tell a debtor that unless he agrees to X, the creditor will sue him is undoubtedly a threat, but I rather doubt it would ordinarily be regarded as menacing, even if the litigation were likely to be ruinous.’

He also considered whether Wragges’ letter threatening to advertise a statutory demand (which he had concluded was inappropriate) met the subjective test under section 21 of the Theft Act 1986 as to whether a demand is unwarranted. He commented that even if the threat could be characterised as ‘menaces’ the defendants would not be guilty of blackmail if they believed they had reasonable grounds for making the demands in the letter, and the threat to advertise was proper (which he had found they did believe). He went on to hold that the blackmail claim was insufficiently particularised.

What should practitioners be mindful of when advising in this area?

Practitioners need to be alive to what extent evidence should be adduced in relation to matters which are not central to the issues the court is being asked to determine. The claimants alleged, contrary to the defendants’ position, that the Candy brothers were joint beneficial owners of CPC. This demonstrated that there was a lie at the heart of CPC, which on the claimants’ case was set up as a fraudulent scheme to evade very large amounts of tax for the benefit of both Candy brothers, thereby demonstrating the nature of their characters.

The judge held that:

‘In civil proceedings similar fact evidence is admissible in principle if it is logically probative of the issues (O’Brien v Chief Constable of South West Police ([2005] 2 AC 53)) but even if it were proved beyond doubt the Candy brothers had committed a tax fraud, I do not see that this would provide any meaningful assistance in resolving the quite different allegations (conspiracy intimidation and the like) on which these proceedings are based.’

Do you have any predictions for future developments in this area?

No doubt we will continue to see in complex commercial disputes where there are significant risks to parties’ financial and business reputations, that all possible causes of action will be vigorously pursued. In particular, we predict that alongside the more established causes of action, parties will also continue to consider what other claims can be raised (for example, breaches of DPA 1998).

However, as this decision demonstrates, the evidence in support of such claims must be critically and continually assessed throughout the proceedings.